The False Claims Act (FCA) imposes severe penalties on those who commit fraud
against the federal government. The statute currently requires violators to pay treble
damages plus a statutory penalty of five to ten thousand dollars per violation. The
goal of the statute is to deter fraud by setting punitive damages at a high level.
However, the tax law, as currently interpreted by the IRS, blunts the force of the statute by allowing a violator to deduct a portion of an
FCA damages award as a business expense. Specifically, Treasury regulations
allow for the deductibility of any portion of an FCA settlement or damages award
that is paid to the whistleblower, known as the “relator,” who brings suit under the
FCA for the alleged fraud. This Note argues that, for reasons of efficiency and
equity, the IRS should change its current position and disallow relator fee
deductions.